| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | -0.28% | 1.92% |
| 2024 |
|---|
| 1.9% |
Parnassus Fixed Income Fund returned -2.48% in Q4, outperforming the Bloomberg U.S. Aggregate Bond Index's -3.06% return, driven by strong security selection in mortgage-backed securities, particularly current coupon 30-year mortgages. For the full year 2024, the fund returned 1.92% versus the index's 1.25%, with corporate bonds being the primary driver of outperformance supported by overweight positioning and favorable security selection. The managers adjusted to a more defensive positioning, reducing corporate bond exposure and increasing Treasury allocation while shortening duration. They maintain an overweight to corporate bonds given yields above 5% but see mortgages as offering better asymmetric returns following corporates' strong performance. Key risks include policy uncertainty from the election results, potential inflation from trade restrictions, and the fading disinflation trend. The outlook anticipates continued corporate bond demand while expecting mortgage volatility to moderate as monetary policy uncertainty abates.
The fund pursues attractive current income through a core-plus bond portfolio with significant allocation to green/sustainable bonds, maintaining an overweight to corporate bonds while positioning defensively amid policy uncertainties and evolving inflation risks.
The managers expect continued demand for corporate bonds given yields remaining well above 5%, though they see mortgages as having a more compelling asymmetric return profile following corporate bonds' strong relative outperformance. They anticipate that interest rate volatility should recede as monetary policy uncertainty abates, supporting mortgage pricing.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Dec 31 2024 | 2024 Q4 | A, ADSK, ARE, LUV, MKC, MRK, MU, PLD, TFC, XYL | Corporate Bonds, credit, duration, fixed income, Mortgage, rates | - | Parnassus Fixed Income outperformed in Q4 and 2024 through strong mortgage security selection and corporate bond overweights. Managers positioned more defensively amid policy uncertainty and inflation risks, reducing corporate exposure while maintaining overweight given attractive yields above 5%. Mortgages offer better risk-reward following corporate outperformance, with volatility expected to moderate as Fed policy stabilizes. |
| Oct 28 2024 | 2024 Q3 | ADSK, AMT, ARE, AVTR, GPN, INTC, LOW, LUV, MKC, MU, PLD, XYL | Corporate Bonds, duration, Esg, fixed income, Mortgage, rates | - | Parnassus Fixed Income Fund slightly underperformed in Q3 as the Fed cut rates 50 basis points. The fund reduced corporate bond exposure from 58% to 50% due to tight credit spreads while increasing mortgage-backed securities to 18% of the portfolio. Managers expect balanced rate environment ahead with returns driven by yield rather than price appreciation. |
| Jul 12 2024 | 2024 Q2 | ARE, AXP, CHRW, COF, D, DIS, GPN, MKC, MS, ORCL, SQ, XYL | Corporate Bonds, credit, duration, Esg, fixed income, rates | - | Parnassus Fixed Income outperformed in Q2 through strong corporate bond selection while positioning defensively for economic softening. Managers reduced corporate exposure, increased mortgage-backed securities allocation, and extended Treasury duration. They expect Fed rate cuts as economy cools from strength, with Treasuries poised to benefit from eventual normalization. |
| Apr 27 2024 | 2024 Q1 | ARE, ARES, BAC, CHRW, CP, GPN, MKC, MS, ORCL, SQ, SYY, TFC, YUM | Corporate Bonds, duration, Esg, fixed income, rates | - | Parnassus Fixed Income outperformed in Q1 2024 through overweight corporate bond allocation, benefiting from strong economy and tight credit spreads. Added undervalued financial issuers and increased mortgage exposure. Expects yields to drive future returns with Fed rate cuts delayed by persistent inflation. Maintains corporate overweight for compelling yield advantage. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2024 Q4 |
MortgageThe fund maintained significant exposure to mortgage-backed securities, particularly current coupon 30-year mortgages which are less rate-sensitive and offer higher yields. Interest rate volatility should recede as monetary policy uncertainty abates, supporting mortgage pricing. |
MBS Passthroughs Duration Prepayment Volatility |
RatesThe Federal Reserve cut rates by 75 basis points during the quarter to address persistent core inflation pressures. The fund maintained a slightly shorter duration than the index amid expectations that the disinflation trend is fading and inflation outlook is more uncertain. |
Fed Duration Yields FOMC Monetary Policy | |
InflationMore than half of the FOMC members expect inflation to remain around 2.5% or higher in 2025, quite different from September when most thought inflation would be closer to the 2% target. The red sweep election results could fuel inflation through trade and immigration restrictions. |
FOMC Target Policy Trade Immigration | |
| 2024 Q3 |
MortgageThe fund increased allocation to mortgage-backed securities from 8% to 18% of the portfolio. These bonds have been disproportionately impacted by higher interest rates as homeowners were locked into existing mortgages. The managers believe mortgage bonds are poised to perform well as homeowners become more active again. |
Mortgage-backed securities Federal Agency MBS Homeowners Interest rates Securitized |
RatesThe Federal Reserve implemented a significant 50-basis-point rate cut in September, its first in four years. The managers see a more balanced interest rate market going forward with longer-term rates anchored between 3.25%-4.00%. They reduced duration amid heightened volatility and expect returns to be driven by yield rather than price appreciation. |
Federal Reserve Rate cuts Duration Yield curve Monetary policy | |
Credit StressCorporate bond spreads returned to nearly all-time tights, meaning investors earn little extra compensation for holding these bonds. The fund reduced corporate bond exposure from 58% to 50% as credit spreads are historically tight and investors anticipate continuation of today's strong economy. |
Corporate bonds Credit spreads Investment grade High yield Credit risk | |
| 2024 Q2 |
Energy TransitionThe fund added a new green bond issued by Dominion Energy during the quarter. Green bonds provide funding to help companies transition away from fossil fuels and into renewable energy sources, which the managers are excited to support as an attractive addition to the portfolio. |
Green Bonds Renewable Energy Fossil Fuels Sustainability |
MortgagePortfolio allocation to mortgage-backed bonds increased to 14% from 8% at year-end. These bonds have been disproportionately impacted by higher interest rates as homeowners are locked into existing mortgages and the government is no longer purchasing securities as part of quantitative easing programs. The managers believe mortgage-backed securities are poised to perform well should yields fall. |
Mortgage-Backed Securities Interest Rates Quantitative Easing Housing | |
Credit StressThe managers are insulating the portfolio from a softer economy and widening spreads by reducing exposure to corporate bonds from 60% to 57%. They note that credit spreads are historically tight but remain near those levels due to continued health of corporate balance sheets keeping default risk low. |
Credit Spreads Corporate Bonds Default Risk Economic Slowdown | |
| 2024 Q1 |
CorporateThe fund maintains a 60% overweight allocation to corporate bonds versus the 25% benchmark weight, believing they provide the best long-term returns due to higher initial yields. Corporate bonds aided performance as tight spreads and strong economic growth supported healthy profitability and cash flows. |
Corporate Bonds Credit Spreads Yield Overweight Duration |
RatesThe Federal Reserve held target interest rates steady as disinflationary trends stalled, leading to delayed rate cuts and rising bond yields. The fund expects the Fed to revise expectations further as 2024 progresses, with longer-term rates potentially rising but most increases behind us. |
Interest Rates Federal Reserve Rate Cuts Inflation Yields | |
MortgageThe fund added about 4% to securitized mortgage exposure, focusing on higher-coupon mortgages trading at wide spreads relative to Treasuries. While still underweight at 12% versus the 28% benchmark, the managers believe this positioning is justified due to lower yields available on these securities. |
Securitized Mortgages Mortgage Rates Spreads Underweight Coupons |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| No Elevator Pitches found | ||||||||||
| TICKER | COMMENTARY |
|---|---|
| TFC | Truist Financial Corp. 1.2 |
| MKC | McCormick & Co., Inc. 1.1 |
| ARE | Alexandria Real Estate Equities Inc. 1.1 |
| LUV | SW Airlines Co. 1.0 |
| XYL | Xylem Inc. 1.0 |
| PLD | Prologis LP 1.0 |
| A | Agilent Tech Inc. 1.0 |
| ADSK | Autodesk Inc. 1.0 |
| MU | Micron Technology Inc. 1.0 |
| MRK | Merck & Co, Inc. 1.0 |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
|---|---|---|---|---|---|
| No Recent Buys Data | |||||
| Ticker | Put/Call | Amount Sold | Shares Sold | % Change | Weight % | Status |
|---|---|---|---|---|---|---|
| No Recent Sells Data | ||||||
| Industry | Prev Quarter % | Current Quarter % | Change |
|---|---|---|---|
| No industry data available | |||
